SEC Chair Gensler Says Crypto Is ‘Rife With Fraud’

The comments come as the SEC reviews applications for six Bitcoin ETFs.

Securities and Exchange Commission Chair Gary Gensler testified that cryptocurrencies are a “highly speculative asset class” and that the crypto industry as a whole is “rife with fraud and scams and hucksters” at a hearing hosted by the Financial Services and General Government Subcommittee of the Senate Committee on Appropriations on Wednesday.

In his testimony, Gensler said, “The whole crypto field is built on models we wouldn’t allow in traditional securities markets,” and, “The whole field has hurt more Americans than it should.”

Senator Dick Durbin, D-Illinois, asked Gensler if it is true that one in five Americans invest in crypto. Gensler responded by saying that the SEC has not surveyed this issue, but that he was aware of other surveys to that effect. When Durbin asked if Gensler was aware that about $9 billion was lost in cryptocurrency scams last year, Gensler answered that it “could be larger, sir.”

After Durbin remarked that crypto assets have “no underlying value,” Gensler responded that the real issue for the SEC is that investors “are not getting the proper disclosure to make their investment choices” and that crypto firms “are bundling and comingling services that we would never allow.”

Senator Bill Hagerty, R-Tennessee, expressed concern that the SEC’s approach, of regulation through enforcement, might be less preferable to rulemaking, in part because enforcement might push cryptocurrency companies, existing and future, to other countries.

“I would strongly encourage, rather than regulating via enforcement, to think through the ruleset that would create clarity here in the marketplace,” Hagerty said, repeating a common criticism of the SEC’s approach.

Gensler responded by saying that many crypto firms are “built on a business model of catch-us-if-you-can” and “a model of preying upon the investing public’s desire for a better life and future.” In prior remarks, the SEC chair has normally argued that new rules are not necessary to enforce rules already on the books that are intended to prevent fraud and comingling functions.

Gensler has repeatedly made public remarks about the importance of bringing the cryptocurrency industry into compliance, but he was particularly forceful in Wednesday’s testimony and has not previously used terms such as “hucksters” to describe cryptocurrency dealers.

Gensler’s remarks came in the same week the SEC announced it has accepted six applications for review of Bitcoin-based ETFs from managers including BlackRock Inc., Fidelity Investments and VanEck. Gensler acknowledged during the hearing that Bitcoin is most likely not a security, unlike nearly every other cryptocurrency, because it is not an investment contract.

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